U.S. natural gas futures held steady on Tuesday as a bullish drop in daily output and forecasts for a few cold days next week offset bearish record production in recent days and a mostly mild outlook through early November.
Front-month gas futures for November delivery on the New York Mercantile Exchange remained unchanged at $2.927 per million British thermal units (mmBtu) at 9:21 a.m. EDT (1321 GMT).
A lack of big price moves in recent weeks has cut historic or actual 30-day close-to-close futures volatility to 49.1%, the lowest since April 2022.
Historic daily volatility hit a record high of 177.7% in February 2022 and a record low of 7.3% in June 1991. Historic volatility has averaged 74.6% so far this year, versus a record high of 92.8% in 2022 and a five-year (2018-2022) average of 57.9%.
Lower spot or next-day prices at the Henry Hub benchmark in Louisiana have weighed on the futures market for most of this year. The spot market has traded below front-month futures for 167 out of 202 trading days so far this year, according to data from financial firm LSEG.
Next-day prices at the Henry Hub gained about 2% to around $2.65 per mmBtu for Tuesday.
Analysts have noted that so long as spot prices remain far enough below front-month futures to cover margin and storage costs, traders should be able to lock in arbitrage profits by buying spot gas, storing it and selling a futures contract.
In other spot market news, gas prices at the Waha hub in West Texas fell about 92% to around 12 cents per mmBtu for Tuesday, their lowest since early May when prices briefly turned negative.
Traders noted that price drop was a sign that gas supplies likely got trapped in West Texas due to an expected or unexpected pipeline reduction.
LSEG said average gas output in the Lower 48 U.S. states had risen to an average of 103.9 billion cubic feet per day (bcfd) so far in October, up from 102.6 bcfd in September and a record high of 103.1 bcfd in July.
On a daily basis, however, output was on track to drop about 3.5 bcfd to a preliminary two-week low of 102.8 bcfd on Tuesday due mostly to reductions in Texas, Louisiana, Pennsylvania and Ohio, down from a record 106.2 bcfd on Monday.
If correct, that would be the biggest one-day decline since December 2023, but analysts noted preliminary data is often revised later in the day.
Even though the weather in the Lower 48 will remain mostly mild through Nov. 8, meteorologists noted it was turning seasonally cooler with the coming of winter and projected it will be much colder than normal for a few days from Oct. 30-Nov 2.
LSEG forecast U.S. gas demand, including exports, would jump from 97.2 bcfd this week to 106.4 bcfd next week. The forecast for next week was higher than LSEG’s outlook on Monday.
Pipeline exports to Mexico have slid to an average of 6.9 bcfd so far in October, down from a monthly record high of 7.2 bcfd in September.
Analysts however expect exports to Mexico to rise in coming months once New Fortress Energy’s plant in Altamira starts pulling in U.S. gas to turn into liquefied natural gas (LNG) for export in November.
Gas flows to the seven big U.S. LNG export plants have risen to 13.6 bcfd so far in October, up from 12.6 bcfd in September. That compares with a record high of 14.0 bcfd in April.
(Reporting by Scott DiSavino; Editing by Jan Harvey)